Foster's shares leap on SAB bid hopes

The shares of Australian brewer Foster's jumped on Monday on renewed
expectation of a takeover bid from SABMiller.

However, some analysts poured cold water on the likelihood of London-listed SABMiller paying the mooted £7bn for the Australian business, or entering a bidding war with Asahi of Japan, which has also looked at making an offer.

SABMiller

The Daily Telegraph first reported that SABMiller was considering a bid in May, when Foster's announced plans to separate its profitable beer business from its under-performing wine division. No offer is expected imminently, but speculation has increased again following a Sunday newspaper report.

A bid is unlikely before Foster's demerges the wine and beer businesses, which is due to happen in the first half of 2011 at the earliest, analysts at Nomura said.

The £7bn price tag on Foster's has been arrived at because it represents the same multiple of 12.5 times earnings which rival Australian brewer Lion Nathan was sold for last year.

However, Trevor Stirling, an analyst at Bernstein in London said this was a "blithe assumption" because SABMiller has already shown it is a cautious buyer, walking away from Mexican brewer FEMSA earlier this year, which was snapped up by Heineken

"SABMiller recently baulked at out-bidding Heineken which paid 11.4 times for FEMSA Cerveza, which arguably has much more potential upside than Foster's," he said. "If another brewer is willing to pay a 12-times multiple for Foster's beer business, we think it very unlikely that SABMiller will get dragged into a bidding war."

Foster's shares jumped 7.6pc, or 44 cents to A$6.26 (£3.60) yesterday, their highest price in more than two years. The company is due to report earnings on Tuesday.